Inflation and NGOs
It is very easy to establish an NGO; almost no regulatory requirements exist and almost no control is exercised. In many countries the establishment of an NGO is completely free of regulation.29 All that is necessary is to decide a purpose for the NGO. This can be very broad and general such as the Worldwide Fund for Nature (WWF) or Medicine Sans Frontieres. Or it can be very narrow and specific such as Brinsley Animal Rescue30, UK or the Temple Trust31, Sri Lanka. All that is necessary is that the NGO has a purpose and does not seek to make a profit. Indeed it is easier to set up a new NGO than it is to close one down. One consequence of this is that the number of NGOs is increasing all the time, arguably at an exponential rate. We can describe this as an inflationary situation and therefore have coined the term NGO inflation. In many respects this is laudable as the need is almost infinite for organisations serving charitable purposes or even serving PR or lobbying purposes. In other respects however there are, or can be, problems associated with this inflation. It is these problems which are the focus of this chapter.
It is important to start by considering the nature of the sector. The not for profit (NFP) sector is one which is growing in importance all over the world. Moreover it is much bigger than people generally realize. In Europe for example it is estimated that the sector comprises around 40% of GDP. As the state reduces its activity this sector can be expected to grow in compensation - indeed some would argue that governments are relying on this happening in order to satisfy their ideological requirements.
Distinguishing features of sector
The first thing we must remember about this sector is that there is no profit motive and decisions must be taken according to different criteria. Instead the emphasis is upon the provision of a service, which is the essential reason for the existence of such an organisation. Additionally there is normally a disconnection between the acquisition of resources and their use - in other words the money to provide the services normally does not come from the recipient of those services. Moreover the need for those services frequently outstrips the ability of the organisation to satisfy those needs and it is forever operating under a situation of resource constraint.
This means that there are different motivations operating in the NFP. It also means that the stakeholders are different -something which we will return to as it is important for our consideration of governance in such organisations.
Types of NFP organisation
We can classify NFPs into various types, each with different purposes:
These are related to government in some way and include such things as a local authority and a health authority. These all have the function of providing services to members of society and receive their funding and powers directly from the national government.
Quasi public body
These are also often known as Quangos (quasi autonomous non-governmental organisations) and serve a public or civic purpose without having any direct relationship with the government. Many civic societies are like this and other examples include such things as housing associations. These too often get some funding directly from the government.
As the name suggests these serve an educational function and include such organisations as schools, further education colleges and universities. These may be publicly owned organisations or privately owned and the norm differs between countries.
We will consider these in detail later but here we need to recognise that a charity exists to fulfill a particular function which involves providing a service.